UPDATE 2-Treasury against raising GSE loan size pre-reform

(Adds detail, trade association statement)

WASHINGTON, Jan 16 (Reuters) - The U.S. Treasury Department said on Wednesday it would not support raising the size of home loans that Fannie Mae FNM.N and Freddie Mac FRE.N may buy until a comprehensive reform package is passed by lawmakers.

Under current rules, Fannie Mae and Freddie Mac may not buy home loans valued above $417,000. But the companies and their allies have argued that those limits should be raised, at least temporarily, so they could buy some of the bigger loans being shunned by investors.

“We could support raising the conforming loan limit only as part of comprehensive reform,” Treasury Spokeswoman Jennifer Zuccarelli said.

Lawmakers would have to pass legislation in order to raise the loan levels, and the White House currently opposes such a move.

“It could happen, but the buzz needs an identifiable sponsor and statements of support from the usual opposition before it becomes a trade that lasts,” Jim Vogel, agencies analyst at FTN Financial Capital Markets in Memphis, Tennessee, wrote in a client note.

Shares of Fannie Mae and Freddie Mac stocks rose in mid-afternoon on hopes that a federal economic stimulus package would include loosening constraints on the two government-sponsored enterprises. Both ended higher, with Fannie up 2.75 percent at $37.30 and Freddie up 2 percent at $31.35. But both were well off the day’s highs after the Treasury Department said it was not supportive of raising the loan level without other reforms.


The National Association of Home Builders and the Housing Policy Council endorsed the Treasury position that the loan levels should be temporarily increased after reform.

The two influential housing trade groups endorsed the Treasury position in an unusual joint statement.

While the builders have argued that the loan limit should be increased indefinitely, many large lenders who make up the Housing Policy Council want those limits kept in place.

“With the potential for an economic recession increasing, now is the time for all of us to put aside our parochial interests and focus on the job of stabilizing the housing market and getting the economy back on track,” said Brian Catalde, president of the home builder group.

The U.S. House of Representatives has passed its version of reform for the two government-sponsored enterprises. But Sen. Christopher Dodd, who chairs the Senate Banking Committee, has not yet drafted a bill.

As lawmakers begin to focus more on November’s elections and less on today’s legislative agenda, odds are dropping that Washington can grapple with the thorny question of GSE reform this year.


In part because the reform effort has stalled, allies of Fannie Mae and Freddie Mac are pushing for the loan limit to be raised immediately.

Sen. Charles Schumer, a New York Democrat, has introduced a bill that would temporarily raise the loan limit cap in order to help financial markets deal with current housing woes.

But the two trade associations said Wednesday they are less supportive of increasing the loan size in the absence of reform.

A spokeswoman for the Housing Policy Council said the trade group opposed raising the conforming loan limit without reform.

Jerry Howard, the chief executive of the home builders group, had a softer view on increasing the mortgage loan limit without new legislation. “We could live with that but we don’t think it would be as effective as total reform,” he said. (Reporting by Patrick Rucker; Editing by Dan Grebler)